Life ins for babies

Posted: Mon Nov 05, 2007 01:10 pm Post Subject: Life Insurance on Babies

Hi Lori,
First of all, I think you are wise to be thinking about buying life insurance on your grandkids.

The first thing I would suggest is that you make yourself the owner of these policies, as well as, beneficiary. That will save some trouble when your grandkids become adults.

There are many whole life policies out there for kids and the premiums are very low. You may want to take a look at MetLife and AIG/American General before you make your final decision.

As long as you buy a whole life policy, I don't think you could go wrong.

Posted: Mon Nov 05, 2007 01:15 pm Post Subject:

The first thing I would suggest is that you make yourself the owner of these policies, as well as, beneficiary. That will save some trouble when your grandkids become adults.

There are many whole life policies out there for kids and the premiums are very low. You may want to take a look at MetLife and AIG/American General before you make your final decision.

As long as you buy a whole life policy, I don't think you could go wrong.

Posted: Mon Nov 05, 2007 04:48 pm Post Subject:

I very much appreciate your input too and Lori thank you for the question. We were thinking of getting insurance for our 13 month old and because I'm not insurance savvy, am overwhelmed at what all those terms mean. I figured it was Gerber Life as I get solicitations from them frequently in the mail. I will also check their rating and go through the necessary steps so we can get our little man insured. Insurance Maze, thanks again! great information

Posted: Tue Nov 06, 2007 08:02 pm Post Subject:

Lori and bee bee, In an article I wrote for National Underwriter some time ago, I stated that the purchase of life insurance on a youngster should be only a part of the "master plan" for the child's future. I'm afraid I've far more experience prosecuting agents who've lied to parents regarding their children's policies that I have actually selling them. I would appreciate the chance to chat with you about your intentions before you proceed. Would you like me to do so in the forum or more privately via e-mail?

Posted: Tue Nov 06, 2007 11:06 pm Post Subject:

While I don't mind a private email, I think that perhaps others could benefit from it being in the forum. If there is personal info then I'll send it via pm, but fine with me if in the forum...by the way, i agree totally about it being ''part'' of the master plan...we also have savings accounts (college fund accounts ''this'' nana calls it) for both babies, and some other 'things'...Would love to hear your thoughts regarding the life insurance, and think bee bee would also .....thanks again Mark, I look forward to your posts.

Posted: Wed Nov 07, 2007 01:30 am Post Subject:

Ok, here goes:

Life insurance on children is usually an impulse purchase – like the National Enquirer, a pack of gum, or candy bar at the supermarket check-out counter. Like so many other spontaneous purchases, buying a life insurance policy for your child might seem like a good idea at the time. However, once you sit down and think about it, it doesn't always make sense.
Realistically, unless a child is earning a huge weekly allowance, his family's income isn't going to be greatly reduced if he dies. On the contrary: in the extremely unlikely event that a child suffers an untimely death, it's the family's expenses that will drop substantially – not necessarily their income. Unless the youngster is a child-celebrity, sports icon, or teen genius, some might consider that insuring his life would be a waste of money. Money that might be better spent buying additional coverage on mom and dad.
Unfortunately, most people aren't as knowledgeable as they should be when it comes to life insurance. In fact, according to Limra International, a research firm sponsored by the life insurance industry, almost 30 percent of the permanent (whole life and its ilk) policies sold in the U.S. every year insure children under the age of 18.
So why do so many parents buy life insurance policies for their children? I believe that it's mostly due to the fact that new parents are always very receptive to the idea of spending a little extra money to protect their children, and that's what they think they're doing. Agents know this and usually don't encounter any resistance when asking for the sale. The insurance companies know this and love the idea that there is very little chance they will ever have to pay a claim on a child's policy.
Whether or not you should purchase a life insurance policy for little Johnny is definitely not something that should be decided while waiting for the coffee to perk. Even though these policies are typically for very small amounts of coverage and are usually offered as a last-minute add-on to a much larger policy the parent has already decided to buy for himself, the decision to cover a child should not be something “thrown in” at the last minute.
This is a decision that has to be made by responsible parents who have considered every single aspect of the “global plan” they have for their children. First consider that life insurance on a child is very inexpensive. A policy purchased early in life is significantly cheaper than one purchased when grown. It is true that securing coverage early in life will guarantee them some form of coverage for the rest of their lives but, whether or not this is a good idea has to be something you've thought about and is somehow woven into that master plan.
One of the most commonly used sales pitches is that life insurance on kids is a great way to guarantee that little Billy will always have a policy, even if he later develops a disease so serious that he doesn't qualify for coverage. This claim isn't false, just much less impressive than it sounds. Even if your child develops health problems later in life, it's not likely that he'll become totally uninsurable. According to Limra International, about 96 percent of all life insurance applicants are accepted. Although purchasing a life insurance policy on a child in order to guarantee future insurability might not be the worst of all ideas, it needs to be part of a that well-thought master plan.
Another one of the more famous, maybe even infamous, sales pitches used is that life insurance is a tax-deferred investment that will help pay for little Billy's higher education. When he enters college, it is claimed, you can borrow tax-free an amount equal to what you paid into the policy, and you can borrow the rest of the cash value at a low interest-rate. This is only one example of a sales pitch that has been literally run into the ground. No interest loans, low interest loans, loans taken against the death benefit, partial withdrawals, partial surrender, the list goes on and on.
The truth is that while life insurance is tax-advantaged, it isn't a good investment when compared to alternatives like 529 or Pre-Paid Tuition plans, Coverdell Education Savings Account (formerly known as Educational IRAs), Uniform Transfers to Minors, The Hope Credit, certain grants, and even some low interest loans. For more information on any of these, contact your financial advisor or the IRS website.
Furthermore, life insurance costs more than mutual funds. There is an upfront sales commission that's much higher than the sales charge on load or no-load mutual funds. Annual investment management fees and of course, annual charges for insurance on the child's life also affect the total cost. Unlike contributions to some college savings plans, the premiums are not deductible. Withdrawals from life policies will reduce the death benefit. If you withdraw more money than the premiums you paid into the policy, you will pay income taxes on the difference and the premiums on a life insurance policy will eat into the gains you could make from the money you are paying.
These expenses leave less money to go into the policy's tax-deferred savings function. As a result, you must usually pay into a good cash value policy for 15 - 20 years before it begins to earn more than a comparable tax-advantaged investment. That generally makes it unsuitable as a college investment plan.
However, a life policy does have its advantages. First of all, the money is sheltered from the financial aid need analysis process and so has no bearing on an application for financial aid. There are no limits on the amounts you can invest. The parents retain control over the money. You can withdraw or borrow contributions tax-free without penalty.
The bottom line: Unless it is part of a well-thought master plan, life insurance is for adults. As a parent, you need a policy that will cover the cost of raising your kids if you die prematurely. You work every day to provide for them, make sure they live well, and have the things they most want (and deserve). You work to put shoes on their feet and a roof over their heads. Use life insurance as a tool to make sure they always live the best life possible.

Posted: Wed Nov 07, 2007 11:32 am Post Subject:

Thanks for the great information, let me tell you my reasons for buying a policy on the grandbabies, (really same reason I have one on my kids).

First, would be absolutely NO withdraw or loans, so that part is out of 'my' equation.

Cost is negligible, not much there I spend more on coffee at the gas station :wink:

Outside chance that they become a 'high' risk for life ins. later in their lives. Although insureable as you said, at a much higher rate (assuming they have a horrible illness).

Finally and the REAL/MAIN reason (is the death benefit), God forbid the unthinkable happens, and one of the children die, (although rare we all see it happen), the last thing I want to worry about is how I (or their parents re: the grandchildren) are going to pay for the funeral expenses, which could be anywhere from 3-10k. This is why I'm considering the 10k range, certainly don't want to 'get rich' from the loss of a child, simply cover the costs necessary to take care of things. If I put away the cost of premium let's say 7.00 per month, it would take just over 119 years to reach 10k.

So assuming all of these things, do you think that whole life is they way to go?

Posted: Wed Nov 07, 2007 03:55 pm Post Subject:

Good morning Lori, when that article first came out late last year, I must have gotten 1000 messages from people just like you.

Because you are in the insurance business, you understand calculated risk and how statistics play into the theory of probability. Therefore you understand that "statistically speaking" you'll get more value out of your cup of coffee at the gas station.

I do appreciate your reasoning and concern though and commend you for that. It sounds as though you've given this some thought and, with that, let me share my thoughts with you.

If you are going to purchase policies on the kids, you might as well do it right. When my kids were young, I bought $25,000 20-payment Life policies on all 3 of them through a company called Guardian. The paymenst were less than $22 each month and in 20 years, the policies are guaranteed to be paid off. After that time, the policies just sit there and never lose value. The plans are Whole Life but why pay them forever if you aren't interested in accumulating cash value.

$25,000 is certainly a respectable amount and the kids can increase that amount later on with very little (if any) underwriting. If you are really concerned about those statistics, put a Guaranteed Insurability Rider on the policies. This will give you the ability to increase the amount of coverage (up to a certain amount) at any time without having evidence of insurability.

I personally wouldn't be concerned with Whole Life. There are great Universal Life and Equity Indexed Life products out there with guarantees to age 110. These will gain value much faster than a W/L policy - if that matters at all. I personally would stay away from term products and companies like Gerber. I've been investigating insurance fraud for many years and just don't like those types of companies. Guardian, New York Life, AmerUs, MetLife or even Prudential would be my choices.

If you'll keep in touch with me, I would be happy to answer any questions and help walk you through the insurance-buying process. I may be able to point out things that some agents never tell you.

Posted: Wed Nov 07, 2007 04:20 pm Post Subject: Life Insurance On Kids

Wow!

I feel that I am a responsible parent and all five of my kids have had life insurance policies since they were three days old.

Why? Because kids die. In fact, teenage auto accidents kill more of our kids than any other cause in the United States.

I think what started out as a simple question of the best type policy and in what amount to buy for kids has somehow blossomed into investments and interest rates and cash values. I am not concerned about any of those things in my kids life insurance policies.

Yes, when they are adults I would like for them to have the opportunity of buying more life insurance, if that is their desire, so the Guaranteed Insurability Rider is an excellent idea.

I'm not sure that I completely understand the comment about the insurance agent not telling a potential insurance buyer everything.

I have been in the insurance business for many years, sometimes more years than I want to admit, but during that time I have sold life insurance, I have bought insurance, and unfortunately, I have been the beneficiary of life insurance proceeds.

There are many agents out there who have no professional ethics, that's true. But, there are many more who have a sincere, professional desire to help people understand their life insurance needs and who want to help guide them in the process of buying the right plan of insurance to meet their own personal goals. Buying life insurance is a very personal decision.

Life insurance agents help guide business owners in the process of making appropriate plans to see that their business continues without the interference of a partner's spouse or other relative.

Life insurance agents help people understand how easy it is to get caught up in the "term trap".

Life insurance agents are the ones people call second when a loved one has died and they need some type of direction.

Sorry, I got off topic, but life insurance has helped me provide a good standard of living for my family and, at the same time, has allowed me to help a lot of people who get caught in the most difficult situation of their life.

Buying life insurance on kids is an excellent idea.

Posted: Wed Nov 07, 2007 08:05 pm Post Subject:

Hello Insurance Maze, Please do not get me wrong, I think that purchasing life insurance on kids is a very responsible thing to do - but it has to be done correctly. As I previously mentioned, I have policies on my kids as well.

I'm also not defaming life insurance agents as a whole. As a 6-year MDRT Member, I have taken a seat at the kitchen table many times. Unfortunately, I have also sat at that table and had to explain the true terms and conditions of policies when the agents were less than completely honest.

Even though I am licensed as an Insurance Fraud Investigator, I still retain my sales license and certifications. This allows me to remain current in the life insurance marketplace. If I am going to assist in the prosecution of a dishonest agent, I need to be, 'similarly qualified' is the term we use.

"There are many agents out there who have no professional ethics, that's true. But, there are many more who have a sincere, professional desire to help people understand their life insurance needs and who want to help guide them in the process of buying the right plan of insurance to meet their own personal goals. Buying life insurance is a very personal decision."

Great statement. I'm glad that you're one of the good guys. Realistically though, the number of life agents who operate in that first group you referenced is about 40% of them all. I've spent hundreds of hours in depositions and that statement I just made has been challenged many, many times. No one has ever proved me wrong.

In my website, I've stated that 40% of every life insurance policy written in America since 1983 will not perform as sold. That statement has also been challenged but never beaten.

It was not my intention to attack anyone or to suggest that you or anyone you know is a bad agent. I just wanted to give my opinion of the steps that should be considered when purchasing life insurance on kids. Sorry for any confusion this may have caused.